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Four Basic Truths of Macroeconomics

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Re: Four Basic Truths of Macroeconomics

#91

Post by jmeister »

AngrySkillzz wrote: post #52
chordalkeyboard wrote: post #37

Earlier quoted context omitted.

> What's your point. Should be obvious from the discussion, especially for someone who “knows quite a bit” about the subject. > Hi yes I know quite a bit about sticky wages and inflation. Then why did you ask me for a source for a statement that is well understood among anyone who has studied the subject? Krugman’s statements to this effect are so well-known as to have been written about in other publications. Back t…

You are purposefully ignoring the normal explanation, which is this: because wages are sticky, firms that need to cut costs in a recession are more likely to lay off people than they are to give pay cuts. Inflation helps to weaken that rigidity so that job losses are not as large. Maybe you know that. You claim that central banks depreciate the currency because they "think wages among the working class are too high."…

I admire your patience here.

Re: Four Basic Truths of Macroeconomics

#94

Post by arcticbull »

chordalkeyboard wrote: post #83
arcticbull wrote: post #73

Earlier quoted context omitted.

Oh my where to even begin. > Citation for your claim that everyone has access to cheap credit. Are you aware of payday loans? I have at no point stated that. What I said is that inflation affects all debts equally. Interest rate on loans is defined on "cost plus" basis, where "cost" is the treasury interest rate, and the "plus" is based on your default risk. However, the "cost" is the same for everyone no matter what…

> I have at no point stated that. What I said is that inflation affects all debts equally. So you do, at least, understand that a person with more debt benefits more than a person with less debt? > Interest rate on loans is defined on "cost plus" basis, where "cost" is the treasury interest rate, and the "plus" is based on your default risk. However, the "cost" is the same for everyone no matter what. So you are awar…

> So you do, at least, understand that a person with more debt benefits more than a person with less debt?

I believe I explicitly stated it benefits debtors over creditors. Poor folks are leveraged substantially more than rich folks, hence the disproportionate benefit.

Without inflation they'd be assessed the same interest rates, with the same risk premiums, but would not benefit from inflation so this is strictly worse, is it not?

> So you are aware that poor people generally pay a premium for loans, based on their risk of default? And you see how that impacts their access to credit? And how this leads to wealthy people benefitting more?

That has nothing to do with inflation which impacts the principal of issued loans.

Re: Four Basic Truths of Macroeconomics

#95

Post by chordalkeyboard »

arcticbull wrote: post #88
chordalkeyboard wrote: post #75

Earlier quoted context omitted.

> Boy are you going to freak out when you learn about stock splits and fractional share investing. You really must be confused if you think thats a rebuttal.

Absolute value of assets doesn't matter. What matters is future appreciation potential of those assets. That's my point. You can infinitely subdivide them and see the same appreciation potential recognized over a greater number of units. Yes people who got in before you may have done better than you. They may not have. But the absolute price isn't relevant since owning AAPL shares isn't a necessity for life. On the o…

> Absolute value of assets doesn't matter. What matters is future appreciation potential of those assets. That's my point.

Someones ability to buy in to those assets is relevant for their ability to realize that appreciation.

> You can infinitely subdivide them and see the same appreciation potential recognized over a greater number of units.

So? The units here don’t matter. The fact that the central bank policy resulted in real wage decrease and nominal asset price increase means that central bank policy benefitted the asset seller at the expense of the asset buyer. Playing fast and loose with units doesn’t change this.

> Remember when you invest in something what you want is for it to become less affordable. That decrease in affordability is called an "ROI" or return on investment.

This is a revealing statement and is actually good example of how central bank policy has distorted even the way people think about assets. You only want your investments to increase in price if you intend to sell or collateralize them. As investments proper, you want to earn dividends. But inflation has driven the prices of assets far out of proportion to their returns, so now people think of r.o.i. as something that happens when you sell.

Re: Four Basic Truths of Macroeconomics

#96

Post by unethical_ban »

WalterBright wrote: post #13
tabtab wrote: post #2

I get a "please subscribe" pop-up and can't get rid of it without fiddling with the CSS editor. Anyhow... Summary of Truisms: 1) During recessions, employers tend to lay off rather than reduce wages 2) Central bank stimulus helps recessions 3) Too much stimulus causes run-away inflation 4) Non-monetary problems like oil shocks and pandemics can cause recessions 5) Increasing population helps economies. ("Hump to de-s…

> Non-monetary problems like oil shocks and pandemics can cause recessions It wasn't the oil shock of the 70's that caused recession. It was our response to it - Nixon's oil and gas price & allocation controls. We came out of that when Reagan repealed it. Our current recession is not caused by the pandemic, but the lockdown response to it.

I read it a few times to realize you aren't being political (I hope). I know nothing about the oil shock, and I know the lockdowns were somewhat needed at the time.

Re: Four Basic Truths of Macroeconomics

#97

Post by unethical_ban »

arcticbull wrote: post #28
chordalkeyboard wrote: post #26

Earlier quoted context omitted.

> Inflation only matters from the time you receive your paycheck to the time you invest it in productive assets or buy the necessities of life. It means the people who save by depositing cash in the bank lose value over time, causing them to purchase investments out of necessity (rather than purchasing them because they believe its a good investment). This bids up the price of investments relative to their return, wh…

> It means the people who save by depositing cash in the bank lose value over time, causing them to purchase investments out of necessity. Ah you get it. That's the idea. Buy gold if you want, buy real estate, buy annuities, buy fixed incomes, I don't care, but money is an intermediary - not a long-term store of value. If you treat it as one you'll have a bad time. Just like if you treated your car as a boat. It'll w…

> That's your duty in a capitalist society - to pick winners by investment.

See, that, and well as your first point, are where the other person's philosophy and yours collide.

I daresay his point is that "It should not be my defacto requirement in society to buy stonks in order to not lose the wages I have duly earned".

You are saying "your obligation in society is to take the wages you earn and keep your money moving, rather than keeping it safely".

Re: Four Basic Truths of Macroeconomics

#98

Post by [deleted] »

dragonwriter wrote: post #85
chordalkeyboard wrote: post #67

Earlier quoted context omitted.

> lol, printing money wouldn't have changed anything there. If they made a -5% real return with no printing, and there's a 2% inflation rate, they'd have made a -3% notional return, or, and I believe this is true, a -5% real return. This makes no sense. You print money and spend it on buggy whips, they continue to make a positive return. Because you printed money and took up the slack demand. > Just as a 2006 vintage…

> You print money and spend it on buggy whips, they continue to make a positive return Sure, but no one is talking about combining general monetary expansion with targeted fiscal stimulus on the industries experiencing a drop in market demand. (There might be good reason to do that to avoid capacity loss if you had a good reason to believe that it was a transitory loss in an industry where even with the buffering pro…

[deleted]

Re: Four Basic Truths of Macroeconomics

#99

Post by arcticbull »

chordalkeyboard wrote: post #75
arcticbull wrote: post #59

Earlier quoted context omitted.

> When assets go up relative to currency, fewer buyers can compete for those assets, leading to the wealthy owning more and the poor getting poorer. Boy are you going to freak out when you learn about stock splits and fractional share investing.

> Boy are you going to freak out when you learn about stock splits and fractional share investing. You really must be confused if you think thats a rebuttal.

> You only want your investments to increase in price if you intend to sell or collateralize them. As investments proper, you want to earn dividends.

uh... no my dude. Whether a company buys back the shares, or issues a cash dividend, warrants, or someone else is willing to pay you more for the same shares, you've obtained what's called a "total return."

What any investor is looking for is a total return, and it doesn't matter in what form. Inflation only sets the benchmark rate for total return.

When a company issues a dividend its stock price drops by the decrease in net asset value of the company once the dividend is issued. It's actually a no-op to issue a dividend from a total return perspective. Whether the money comes from a different shareholder as a result of disposition, from the company as the result of a buyback, or as a dividend, is utterly irrelevant.

The difference between an unrealized gain and a dividend is the difference between a "realized" and a "mark-to-market" gain. They have different profiles, and different benefits. For instance, a mark-to-market gain can be rolled forward into different tax years where as a realized gain must be attributed to the current tax year.

Please, for the love of stocks, take an ECON class. I'm not a complementary tutor, and you're so far off the reservation it's hard to even know how to reign you in.

Re: Four Basic Truths of Macroeconomics

#100

Post by chordalkeyboard »

arcticbull wrote: post #94
chordalkeyboard wrote: post #83

Earlier quoted context omitted.

> I have at no point stated that. What I said is that inflation affects all debts equally. So you do, at least, understand that a person with more debt benefits more than a person with less debt? > Interest rate on loans is defined on "cost plus" basis, where "cost" is the treasury interest rate, and the "plus" is based on your default risk. However, the "cost" is the same for everyone no matter what. So you are awar…

> So you do, at least, understand that a person with more debt benefits more than a person with less debt? I believe I explicitly stated it benefits debtors over creditors. Poor folks are leveraged substantially more than rich folks, hence the disproportionate benefit. Without inflation they'd be assessed the same interest rates, with the same risk premiums, but would not benefit from inflation so this is strictly wo…

> Poor folks are leveraged substantially more than rich folks, hence the disproportionate benefit.

This is false, rich folks have far more debt than poor people, not to mention access to lower prices for loans.

> Without inflation they'd be assessed the same interest rates, with the same risk premiums, but would not benefit from inflation so this is strictly worse, is it not?

You’re right that the rich, who hold vastly greater amounts of debt, would not benefit from the central bank depreciating their liabilities.

> That has nothing to do with inflation which impacts the principal of issued loans.

When the principal decreases by 2% per annum and the rich person pays 2% interest and the poor person oays %600 percent, the rich person gets free credit while the poor person pays ~600% per annum. Surely you can see that this is worse for the poor person, even before factoring in that the rich person gets capital gains from asset inflation while the poor person gets real decrease in wages.

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